The UK Government announced on 8 July 2015 that the standard UK Insurance Premium Tax (IPT) will increase by 3.5 percentage points (from 6% to 9.5%), with effect from 1 November 2015.
Therefore after 1st November 2015, all taxable premiums received by insurers using the IPT “cash receipt” method will be charged at 9.5% (unless the insurance arrangement is subject to the higher IPT rate of 20%).
This will clearly have an effect on both the Paying Party and the Receiving party who have an insurance premium that remains unresolved in a Bill of Costs.
Receiving Parties must now factor in the increased tax element for all premiums remaining outstanding which have been claimed from the Paying Party by way of either a formal Bill of Costs or merely a without prejudice schedule.
As the increase relates to the payment of premiums paid by the insured after 1st November 2015, consideration should be given to those cases where costs are likely to be agreed before that date but not paid until after that date. Should the additional tax not be factored in when negotiating, difficulties are bound to ensue after costs have been agreed.
Notification should be given to the paying party that, unless payment is received within a time frame to enable payment of the premium to the insurance company concerned, then the additional tax will be recoverable from that party.
Paying Parties should now give serious consideration to paying all ATE insurance premiums that are not in dispute with immediate effect.
Payment should be made with a statement that this payment on account relates specifically to the insurance premium and that no liability is accepted if the receiving party fail to forward this payment to the insurance company before the 1st November.
Both parties should ensure that their current Costs draftsman and costs negotiators are fully aware of the forthcoming change and are dealing with the situation accordingly.
If you have any queries regarding this, or any other costs matter, then please get in touch. We would be happy to assist.